The Helen of Troy spoken of by Greek poet Homer was said to be so beautiful that she had "the face that launched a thousand ships." Well, even if that's true, investors in personal care product maker Helen of Troy
Results for the February quarter (the company's fourth fiscal quarter) were decidedly mixed. Though net reported sales climbed 13% and gross margin improved slightly, a very large increase in SG&A expenses thumped the operating margins (down more than 6%, to 11.8%) and sent operating income down more than 25% below the prior year.
Without the inclusion of the OXO housewares business (acquired last year), its business would have been even weaker. Sales of personal-care products for the quarter were just above $100 million -- down 11% from the year-ago period. What's more, given that OXO is a relatively higher-margin business, I'd assume that profitability would have been even worse.
The balance sheet is not exactly a treasure to behold, either. Accounts receivable grew 53% and inventory climbed 32% vs. a 22% sales increase on a full-year basis. Top that off with a big chunk of debt ($260 million) relative to equity, and it's hard for a value guy like me to get warm and fuzzy about the business.
I'm also a little troubled by management. With all of the talk on the conference call about "record results" and how management was "pleased" with fiscal 2005 results, you might think that the stock wasn't at a 52-week low and that fourth-quarter sales growth wasn't downright bad (when you exclude OXO). Top that off with the fact that the CEO of Helen of Troy takes home a bigger salary than the CEO of Unilever
On the plus side, Helen of Troy does have some brands with ongoing value, and the OXO business should be a source of some strength. And the company still ended the year with a return on assets of more than 9% -- not a bad number, by any means.
Valuation is trickier than it might appear. A P/E below 10 looks enticing, but the cash-flow picture is not nearly as appealing at present. What's more, a P/E of 10 isn't quite as appealing vis-a-vis management's guidance of 6%-11% EPS growth for the next year.
That said, I can't hate, or love, this stock right now. I'm sure the business can do better, but I'm not so sure this management team can do it. The valuation is enticing, but valuations alone don't make stocks go up. So, I revert to my default approach: When in doubt, stay the heck out.
We'll take care of your information needs now, with more takes on the personal-care industry:
- Unilever Looks for Growth Leverage
- P&G Cleans Up on Earnings
- The Gingivitis Wars
- Helen of Troy's Waiting Game
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares). He also wonders when CEOs are going to catch on to the fact that investors don't give a rip about "record results" when their stock is in the tank.